AFLAC Earns $1.40 per Share

AFLAC ($AFL) just reported fourth-quarter earnings of $1.40 per share which was one penny better than Wall Street’s estimate. The weaker yen took a big bite out of earnings — 18 cents per share. That stings. In October, AFLAC gave a range of $1.38 to $1.43 per share.

For all of 2013, AFLAC earned $6.18 per share. The yen had a terrible 2013; it fell 18.2%. For the year, AFLAC lost 76 cents per share due to the weak yen. Considering the massive headwind, I think AFLAC did very well.

Now, on to their outlook for 2014:

Commenting on the company’s fourth quarter and full year results, Chairman and Chief Executive Officer Daniel P. Amos stated: “We are very pleased with Aflac’s financial performance for both the quarter and year. As the year progressed, operating earnings per diluted share were better than expected, and we finished the year slightly ahead of our expectation for operating earnings to increase 5%, excluding the impact of the yen.

“Aflac Japan produced solid results for both the quarter and the year. Sales of our third sector products were at the high end of our sales target range in 2013, primarily reflecting a positive response to our EVER medical product and the advertising we created to promote it. Consistent with our expectations, Aflac Japan’s new annualized premium sales in the fourth quarter and for the year were down significantly following the repricing of first sector products in April. However, we remain pleased with our expanded distribution system. Our agreement with Japan Post Holdings, which was announced in July 2013, further demonstrates the overall strength of the Aflac brand, our reputation for quality customer service, and the value our products provide.

“From a financial perspective, Aflac U.S. continued to perform well for the quarter and for the full year. However, we remain disappointed with sales growth in the United States. With more than 90% of our accounts coming through the small business market, continued low levels of optimism have prompted small employers to remain guarded in their hiring outlook, which limits our universe of potential new policyholders. Additionally, ongoing uncertainties around health care reform implementation have prompted many businesses and consumers to defer decisions related to health care coverage. However, we believe the need for our products remains very strong and we continue to work on helping our distribution reach more employers, both small and large. At the same time, we seek opportunities to leverage our strong brand and relevant product portfolio in the evolving health care environment.

“Overall, we were pleased with our investment results in 2013, especially in light of the low-yield environment in both Japan and the U.S. We position ourselves first to ensure we meet our policyholder obligations. We then seek to achieve a high degree of confidence in allocating capital to our shareholders while also pursuing investment strategies that enhance our overall income growth. As anticipated, our decision to allocate more of our investment portfolio to JGBs in the second half of 2013 suppressed our new money yields. However, our average new money yield of 2.47% was slightly higher than our 2012 results. Based on our current capital position and market outlook, we have resumed purchasing U.S. dollar securities for Aflac Japan’s portfolio within ranges consistent with our strategic asset allocation plans and product needs. We will continue to evaluate the allocation strategy based on investment market dynamics and capital, making tactical changes consistent with our outlook.

“We remain committed to maintaining strong capital ratios on behalf of our policyholders and bondholders. We had conveyed that our goal was to end 2013 with a risk-based capital (RBC) ratio in the range of 500% to 600%. Although we have not yet finalized our statutory financial statements, we estimate our 2013 RBC ratio will exceed 750%. Additionally, we expect that Aflac Japan’s estimated solvency margin ratio (SMR) at year-end also exceeded 750%, which is an improvement over the SMR at September 30, 2013, of 732% and is well above our objective for 2013.

“As we have said for many years, when it comes to deploying capital, we still believe that growing the cash dividend and repurchasing our shares are the most attractive means, and those are avenues we will continue to pursue. In 2013, we repurchased $800 million, or 13.2 million of our shares, which is consistent with what we had communicated. Additionally, as we indicated last quarter, we increased the cash dividend 5.7%, effective with the fourth quarter. This marks the 31st consecutive year in which we’ve increased the cash dividend.

“As we look ahead to 2014 sales opportunities, we expect Aflac U.S. sales to be flat to up 5%. We expect Aflac Japan sales of third sector cancer and medical products to be up 2% to 7%.

“I want to reiterate that our primary financial objective for 2014 is to increase operating earnings per diluted share 2% to 5% on a currency neutral basis. As we communicated last quarter, our 2014 EPS will benefit significantly from increased share repurchase activities, but will also be challenged by several headwinds. Those include a difficult low-interest-rate environment in Japan, sizeable expenditures in both Japan and the U.S. to enhance our operational infrastructure, and an increase in Japan’s consumption tax, rising from 5% to 8% starting in April 2014. It is important to note that absent certain headwinds and tailwinds, our 2014 EPS growth rate objective would have been comparable with our 2013 EPS growth rate. As we look to the future, we anticipate the headwinds we face in 2014 will diminish significantly in 2015. We continue to believe we are well-positioned in the two best insurance markets in the world.”

The good and important news is that AFLAC reiterated their 2014 guidance of growing operating earnings by 2% to 5%. That’s on a currency neutral basis. In October, they gave a full-year range of $6.28 to $6.52 per share. I’m honestly not sure if that range is still applicable. If we apply 2% to 5% growth off 2013’s earnings, that gives us a range of $6.30 to $6.49 per share (again currency neutral). Wall Street had been expecting earnings of $6.17 per share for 2014.

Posted by on February 4th, 2014 at 4:13 pm


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